Daily Newsletter, Tuesday, 8/5/2014

Table of Contents

Market Wrap

Russian Worries Return

by Jim Brown

Growing indications Russia is building up troops on the Ukraine border suggests Putin is preparing to invade.

Market Statistics

Just when traders thought it was safe to go back into the market the bottom fell out again. Earlier in the day Ukraine warned that Russia had restored its combat readiness by moving more than a dozen battalion sized combat groups to the Ukraine border. A Ukrainian military spokesman said Russia has moved 192 warplanes, 137 helicopters, 160 tanks, 1,360 armored vehicles and 45,000 soldiers to the border. Russia began a five-day exercise involving more than 100 planes on Monday and some of those briefly crossed into Ukrainian airspace. In the past seven days more than 6,200 people escaped their homes with another 117,000 already displaced inside Ukraine. According to Russian data about 730,000 people fled to Russia when the separatist conflict began. Originally there were only 300 separatist rebels and that number has swelled to 15,000 in recent weeks.

More than 65 towns have been retaken by the Ukraine military and the rebels hold less than half the territory they controlled just four weeks ago. The continuing advances by the Ukrainian military apparently have aggravated Putin and put him in fear of losing the war. His rapid mobilization of troops and equipment are either to invade Ukraine on a "peacekeeping or humanitarian mission" or to threaten and intimidate Ukraine into some kind of settlement. I believe Russia will invade and call it a humanitarian mission to restore peace in the area. Russia's foreign ministry said eastern Ukraine was nearing a "humanitarian catastrophe" and requires immediate international assistance. This appears to be a telegraphed message of what is to come.

Putin has ordered the government to prepare a response to the U.S. and European sanctions. One such response reportedly being considered is to restrict Siberian airspace for Western airlines. This would significantly lengthen their routes and send fuel costs much higher. Some routes would have to be changed dramatically and possibly cancelled. Reports from Moscow claim they are going to prohibit bourbon from Kentucky because of quality control standards. I warned about this last week. Putin frames his restrictions in a public safety format rather than saying it is a rebuttal to sanctions. Welcome to the new cold war.

The Dow dropped more than -100 points at 1:30 when Poland and Estonia both warned a Russian invasion of Ukraine was imminent. Polish Foreign Minister Radoslaw Sikorski told TVN24 TV "That is a lot of equipment. This is the sort of thing one does to exert pressure or to invade."

The Dow declined -198 at the lows but rebounded slightly at the close for a loss of -140. The S&P came within a point of retesting the 100-day average at 1912 and the Nasdaq barely managed to close above 4350. It was not a fun day.

The biggest economic report of the day was the ISM Nonmanufacturing commonly referred to as ISM Services. The headline number came in at 58.7 and the highest reading since the 59.7 in February 2011. New orders rose from 61.2 to 64.9 and the third consecutive month above 60. This is a proxy for what to expect in future months from the rest of the internal components.

The business activity component rose sharply from 57.5 to 62.4. However, backorders were flat at 53.0 and inventories declined from 53.5 to 51. Employment rose from 54.4 to 56. The services index has been improving steadily since January and suggests the economy is improving.

One exception to the good news was a drop in export orders from 55.0 to 53.0 and probably a sign the sharply rising dollar has already started to slow purchases from overseas.

This report will be negative for the Fed's policy. The continued strong growth in services will bring the inflation hawks front and center and the potential appears to be growing for rate hikes sooner rather than later.

Factory Orders for June rose +1.1% and a three month high compared to a -0.5% decline in May. The expectations were for a gain of +0.6%. Durable goods orders were revised up from +0.7% to +1.7% for June. Defense orders rose +6.9% after a -24% decline in May. This report will have a positive impact on Q2 GDP revisions.

The calendar for the rest of the week is light with no reports that could rock the market. This is the lightest three day schedule I can remember.

The earnings calendar is also weak. The biggest names for Wednesday are Green Mountain, Time Warner and Dish Networks. Once this week is over there will be very few companies left to report.

After the bell today Disney (DIS) reported earnings of $1.28 compared to estimates of $1.16. Disney earnings were powered by two major films, Captain America and Maleficent. They were still reaping profits from the largest animated film ever with Frozen. At the same time Guardians of the Galaxy opened last weekend with the largest August box office ever at $94.3 million.

The acquisition of Marvel in 2009 and Lucasfilm in 2012 has given Disney a huge content production force and with Marvel there are dozens of characters that will be given new life on the screen.

Disney saw profits at the theme parks increase +23% to $848 million. They raised the entry price to the Magic Kingdom twice in the past year.

Shares of Disney were unchanged in afterhours trading. Shares have been stuck at the recent highs for the last month after many months of gains.

MGM Resorts (MGM) reported earnings of 21 cents compared to estimates of 10 cents. The company bragged about progress on the new casino in Cotai that will have three times as many rooms as the MGM Macau. The company said it is on budget and will open on schedule in 2016. They also have a $375 million arena under construction on the strip in Las Vegas. They are also renovating the Mandalay Bay in Vegas and it will reopen as the Delano Las Vegas and will cater to a higher paying customer. Shares declined slightly after the report.

First Solar (FSLR) reported earnings of 4 cents compared to estimates for 37 cents and comparisons of 37 cents in the year ago quarter. Revenue rose +4.7% to $544.4 million. They raised the expectations for expenses for the full year from a median of $375 million to $387.5 million. They also cut their production guidance from 1.9-2.0 gigawatts to 1.8-1.9 GW. The blamed the earnings shortfall on some project delays in Q2 that resulted in deferment of some earnings until later in 2014.

That big of an earnings miss would normally crater the stock. Today FSLR shares declined -$3 in afterhours and that was a minor drop compared to what I would have expected.

Zillow (Z) reported a loss of 5 cents compared to estimates for a 4 cent loss. This compares to a 30 cent loss in the year ago quarter. Revenue rose +68% to $78.7 million and beat estimates of $76.5 million. The raised full year guidance for revenues in the range of $322 million compared to analyst expectations of $311 million. Revenue in Q3 is expected to be $87.5 million and 5% over analyst estimates. Shares declined about $2 after the report.

Expeditors International (EXPD) reported earnings of 46 cents compared to estimates for 47 cents. Revenue rose +6% to $1.6 billion and in line with estimates. Gross margins declined from 31.4% to 30.3%. Shares of EXPD declined -5% on the news.

Late today Twenty-First Century Fox pulled its $80 billion offer to buy Time Warner (TWX). The surprise announcement caught investors off guard. Rupert Murdoch cited Time Warner's management and its board's refusal to come to the table to discuss a takeover as one reason for the sudden cancellation of the deal.

Murdoch said the proposal had significant strategic merit and compelling financial rationale and our approach had always been friendly. He said management and the board refused to engage with us to explore the offer. Several analysts said this cancellation would put pressure on Time Warner management to justify why they would not discuss the offer and they speculated this was a negotiating ploy by Murdoch to force Time Warner management to negotiate.

FOXA shares rallied +$3 after the announcement to close the afterhours at $34. Shares had collapsed from $36 after the original offer was made. Time Warner shares fell -$9 in afterhours to close just under $77.

Bloomin Brands (BLMN) collapsed -23% after reporting earnings of 27 cents that missed estimates of 29 cents. Revenue rose +9% to $1.11 billion to beat estimates slightly. The company cut its outlook for the full year from $1.21 to $1.05-$1.10 compared to analyst estimates for $1.22.

The market was trending lower before the Ukrainian news hit the wires. Everyone blamed it on the Polish foreign Minister's remarks but the news had been out for several hours. I read the first draft on Bloomberg about 11:30 ET. Art Cashin was on CNBC warning to watch out for a drop below the morning lows at 1926 and that of course happened at the same time as the Polish comments. There was a mixture of technical weakness and headline weakness that hit about the same time. The S&P had declined to trade in the 1928-1930 range just before the Polish headline broke.

The problem we have tonight is a new intraday low at 1913 that was below Friday's low at 1916. The rebound from that loss was lackluster to close at 1920. The 100-day average is 1912 and uptrend support is around 1900. If the S&P makes a lower low on Wednesday it would be a technical breakdown that could take us to 1900 or even 1885.

If Putin really wanted to cause problems for the U.S. he could produce a headline in the middle of the trading day 2-3 times over the next week and we would be significantly lower. It would not cost him a thing but the effort to make up the headlines. However, I believe he is going to invade the Ukraine and that is going to be market negative. The U.S. won't respond militarily but it means the sanctions are going to worsen and the impact to Europe is going to be ugly with a new recession likely.

The market still has a lot of bulls hoping to buy the dips thanks to the strong earnings and surprising economics. However, the multiple headlines from geopolitical events are probably going to continue to weigh on stocks. This is the perfect month for ugly headlines since it is typically the worst month of the year for the markets.

The Dow was down nearly -200 points at the lows and recovered to end down "only" -139. I doubt anyone is actually cheering for that rebound from the lows. The close at 16,427 is a two-month low and there is serious risk for a continued plunge. The Dow found interim support at 16,400 but any further decline would target something in the 16,000 range. The 200-day average at 16,333 is not expected to be meaningful support because the 30 stock index can be pushed around by any 2-3 stocks at any time.

The Dow is seen as "the market" and I am afraid we are looking at lower lows in the days ahead.

The Nasdaq Composite managed to hold at 4350 again despite a couple intraday dips to the mid 4330s. The Nasdaq lost -31 points but it was not dramatic. It was a general weakness rather than panic in a specific group of stocks. If the 4350 level does break the net support is in the 4250 range with the 100-day at 4258.

If the Nasdaq does break below 4350-4344 it could be a dramatic drop since that support level is so clearly defined.

The strongest index was the Russell 2000. Who knew the small caps would be nearly immune to a potential invasion in Ukraine. The index was positive early in the day and only lost -3 points at the close. The 1120 level has become a price magnet despite stronger support at 1096. I am happy to see the strength in the small caps because that means fund managers are not hiding under their desks. They are actually holding their positions and apparently putting some of that new month end retirement cash to work.

Remember the Russell 3000 I pointed out over the last two weeks? The $RUA actually held on the 100-day average for the last three days. While I have little hope this support will hold it does mean the broader market is not as weak as the Dow would indicate.

I am worried the events overseas along with our normal post earnings depression in August is going to weigh on our markets for the next several weeks. I would be hesitant to add new long positions until a tradable bottom appears. Putin is a wildcard and as evidenced by the comments from Moscow today he is not going to take the sanctions against Russia quietly. We can expect additional events from Russia just so Putin can prove he is not afraid of the West.

New Option Plays

Market Share Leader

by James Brown

Stop Loss: 99.35
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.0 million
Entry on August -- at $---.--
Listed on August 05, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Why We Like It:
Hard drives are a critical piece for any computer system. Today hard drives or hard disk drives are not just for computers. They are in tons of consumer products including DVRs, home entertainment centers, game consoles, laptops in addition to your PC. Plus they are a significant portion of the data center business and the cloud computing phenomenon.

A few years ago WDC was neck and neck in a race with its rival Seagate (STX). They were essentially a duopoly in the hard drive business. WDC has slowly stolen market shares from STX thanks to a better product. The outer edge of a normal 7200 RPM hard drive is moving at 67 miles an hour. Eventually something is going to break. Hard drives have a 5% failure rate in the first year. That jumps to almost 12% in the first three years and about a 20% failure rate in four years. Some of you are reading this right now and wondering how long you've had your current hard drive. Whatever the answer is, you'd better back up your data now.

Seagate's drives have a 26.5% failure rate in the first three years. WDC's managed to cut its failure rate to just 5.2% in the first three years. That is significant, especially if you're an enterprise customer with a ton of servers. WDC has been developing a stronger solid-state drive for its big business clients. All the data on the cloud has to sit somewhere. The sea change movement to put more and more data on the cloud will continue to drive need for more storage.

The death of the PC was been a long-term issue for hard drive makers. WDC has developed a strong non-PC related sales that now account for more than 50% of its business. On the plus side earlier this year Intel (INTC) reported a strong surge in PC sales so the death of the PC might be a little premature.

WDC just reported earnings on July 30th and it was a good quarter. For WDC it was their fourth quarter of 2014. Wall Street expected a profit of $1.74 a share on revenues of $3.6 billion. WDC delivered $1.85 a share with revenues of $3.65 billion.

The company said consumer electronics and gaming was a big performer with a +67% surge to 10.9 million units. Their notebook hard drive shipments fell -5% to 22.9 million units but that was better than analysts' expectations.
Altogether WDC shipped 63.1 million hard drives with an average selling price of $56 and a gross margin of 28.2 percent.

WDC has also been actively buying back shares. Last quarter the company repurchased 3.2 million shares and for the their fiscal year they bought 10.3 million shares for a total of $816 million.

WDC's guidance was rather lackluster but shares held up well. Barclays raised their outlook for WDC following the earnings report and upped their price target from $98 to $117. The Point & Figure chart is more bullish and currently forecasting at long-term target of $145. A move over $104 would produce a new triple-top breakout buy signal on the P&F chart.

WDC appears to have short-term resistance in the $102.50-102.80 zone. Tonight we're suggesting a trigger to buy calls at $103.05.

In Play Updates and Reviews

Invasion Fears Spark Reversal

by James Brown

New worries about a potential Russian invasion into Ukraine sparked another sell-off that erased yesterday's gains.

COH and UNFI hit our stop loss.

Current Portfolio:

CALL Play Updates

Gilead Sciences, Inc. - GILD - close: 92.27 change: +0.09

Stop Loss: 87.99
Target(s): To Be Determined
Current Option Gain/Loss: + 1.3%
Average Daily Volume = 14.1 million
Entry on July 29 at $92.25
Listed on July 28, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments: 08/05/14:
GILD continues to drift sideways near its 10-dma and the $92.00 level.

More conservative investors may want to move their stop loss close to the simple 20-dma currently near $89.80.

Earlier Comments: July 28, 2014:
GILD seems to be everyone's favorite biotech stock. I only hear bullish opinions about the future of the company, and for good reason. They have some pretty amazing treatments with products for HIV/AIDS, liver diseases, oncology, cardiovascular, respiratory, and more. GILD has essentially
revolutionized how we treat major diseases like HIV and Hepatitis C.

According to the company website, "Gilead Sciences, Inc. is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need. We strive to transform and simplify care for people with life-threatening illnesses around the world. Gilead's portfolio of products and pipeline of investigational drugs includes treatments for HIV/AIDS, liver diseases, cancer and inflammation, and serious respiratory and cardiovascular conditions."

This year everyone has been raving over GILD's hepatitis C treatment called Sovaldi. Hepatitis C is a form of viral hepatitis that causes chronic inflammation of the liver. About 185 million people currently suffer with hepatitis C. Previously the most common treatment for hepatitis C had serious side effects and was less than 50% successful. GILD changed that with their Sovaldi drug that not only treats the symptoms but actually cures the patient. The company has drawn some negative publicity over the cost since GILD charges $84,000 for a 12-week course of Sovaldi in the United States. The fact that 80% to 90% of patients who take Sovaldi are cured is a major milestone.

The Financial Times noted that before Sovaldi the impact of hepatitis C in the U.S. took a heavy toll on the healthcare system. The disease can lead to liver failure and cancer, both of which cost significantly more than Sovaldi's $84,000 price target. Hepatitis C is the leading cause for liver transplants in the U.S., which can cost a minimum of $145,000. One consulting firm estimated that the annual cost of hepatitis C to the U.S. healthcare system was going to surge from $30 billion to $85 billion in the next twenty years. Sovaldi has the potential to change. that.

Stocks move on earnings and GILD has plenty of them. They company last reported on July 23rd. Wall Street was expecting a profit of $1.80 a share on revenues of $5.86 billion for the second quarter. GILD delivered a profit of $2.36 a share with revenues soaring +136% to $6.53 billion. Last quarter Sovaldi accounted for $3.5 billion in sales. Management issued bullish guidance on revenues and margins.

GILD has also had good news with both the FDA and the European Committee for Medicinal Products for Human Use approving GILD's Zydelig treatment for chronic lymphocytic leukemia and follicular lymphoma. The European committee's decision will now be sent to the full European Commission and if approved will open up Zydelig to all 28 countries in the EU.

The outlook is pretty bullish for GILD. Traders just bought the dip and shares closed at all-time highs.
Today's intraday high was $91.73. We are suggesting a trigger to buy calls at $92.25.
We are not setting an exit target tonight but I will point out the point & figure chart is bullish with a $106.00 target. I am concerned that the $100.00 level could be temporary resistance for GILD. We'll have to wait and see.

- Suggested Positions -

Long Oct $95 call (GILD141018C95) entry $3.70*

07/29/14 triggered @ 92.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Golar LNG Ltd. - GLNG - close: 60.84 change: -1.47

Stop Loss: 59.65
Target(s): To Be Determined
Current Option Gain/Loss: -26.2%
Average Daily Volume = 1.3 million
Entry on July 25 at $62.25
Listed on July 22, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments: 08/05/14:
GLNG underperformed today with a -2.3% decline. I don't see any news to account for today's relative weakness other than the industry wide drop in the energy stocks. GLNG looks poised to test potential support at $60.00.

Earlier Comments: July 22, 2014:
GLNG describes themselves as, "one of the world's largest independent owners and operators of LNG carriers with over 30 years of experience. We developed the world's first Floating Storage and Regasification Unit (FSRU) projects based on the conversion of existing LNG carriers. We lead the industry with committed projects. We are progressing plans to grow our business further upstream via Floating liquefaction (FLNG). Our strategic objective is to become an integrated midstream player in the LNG industry."

The big picture play here is LNG exports. The shale-gas industry in the United States is booming so there has been a surge in supply. Meanwhile demand remains strong globally and the price of natural gas in Europe is double what is in the U.S. and the price is triple in Asia. Seeing an opportunity the American gas industry is planning on exporting more natural gas. The problem is that natural gas has to be liquefied before it can be transported. Turning natural gas to liquefied natural gas means cooling the material to -259 degrees Fahrenheit. Creating an LNG export terminal is a multi-year, multi-billion project. The U.S. is currently building several LNG export terminals to be completed in the next few years.

At the same time there has been a rise in the number of LNG transport ships to move all of this natural gas. Unfortunately the timing is a bit off. At the moment there is more LNG transport ships than really needed. The current global LNG fleet is about 365 vessels. That number is supposed to grow by another 29 ships this year but several of them have been delayed. However, by 2017-2018 it looks like there could be a shortage of LNG transport ships, which will drive rates higher for the shipping companies.

GLNG has about a dozen ships. They should take delivery of several more in the next 12 to 18 months. Instead of scrapping their older ships the company has decided to turn some of them into floating storage & regasification units (FSRU). They are also working on a floating liquefaction (FLNG) project.

Long-term the company looks poised to capitalize on the natural gas transport market. Investors have taken notice with a strong rally this year. Of course a +3.2% dividend yield doesn't hurt either.

Shares of GLNG have been consolidating sideways in the $57.50-62.00 zone for the last few weeks. Today GLNG is on the verge of breaking out from this trading range. We want to be ready if it does.

We are suggesting a trigger to buy calls at $62.25.
Earnings are coming up in late August (potentially around the 27th) and we will likely exit prior to the announcement.

Stop Loss: 105.99
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.5 million
Entry on August -- at $---.--
Listed on August 04, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments: 08/05/14:
LYB's midday rally reversed as the broader market rolled over this afternoon. Shares are sitting on short-term support at the 10-dma. We are waiting for a new high.

Earlier Comments: August 4, 2014:
One way to play the shale-gas boom in the U.S. is plastics. The bloom of natural gas production has been a huge blessing for LYB. According to the company's website, "We participate in the entire petrochemical value chain, from refining to specialized petrochemical product end uses. We are the largest producer of polypropylene and polypropylene compounds; a leading producer of propylene oxide, polyethylene, ethylene and propylene; a global leader in polyolefins technology; and a producer of refined products, including biofuels. Additionally, LyondellBasell is a leading provider of technology licenses and a supplier of catalysts for polyolefin production."

The recent spike in LYB's stock price was a reaction to better than expected earnings results. Wall Street was looking for LYB to deliver a profit of $1.93 a share on revenues of $11.5 billion. LYB surpassed expectations with a profit of $2.22 a share with revenues rising +9.1% to $12.12 billion.

The stock has been an earnings machine with rising earnings the last four years in a row. Analysts are now estimating LYB will see earnings rise 11% in 2014 and 16% in 2015. Jefferies recently raised their price target on LYB from $120 to $125 as they upgraded their EPS estimates on the company.

After a strong rally from $100 to $110 in mid July the stock was short-term overbought and due for a pullback. Traders jumped in to buy the dip near LYB's simple 10-dma last week. Now LYB is rebounding higher.

More aggressive traders may want to buy the bounce today. We are suggesting a trigger to buy calls at $110.50 since the July high is $110.38.

FYI: For more background on the LYB story Forbes.com has a great article that you might find interest. You can read it
here.

Trigger @ $110.50

- Suggested Positions -

Buy the DEC $115 call (LYB141220C115)

Option Format: symbol-year-month-day-call-strike

Palo Alto Networks, Inc. - PANW - close: 79.76 change: -0.48

Stop Loss: 76.75
Target(s): To Be Determined
Current Option Gain/Loss: -12.5%
Average Daily Volume = 1.3 million
Entry on August 04 at $80.50
Listed on July 30, 2014
Time Frame: Exit PRIOR to earnings on Sept. 9th
New Positions: Yes, see below

Comments: 08/05/14:
When the market shot lower early afternoon shares of PANW quickly followed but PANW did bounce near its simple 50-dma. Traders may want to wait for a bounce above today's high (80.97) before initiating new positions.

Earlier Comments: July 30, 2014:
Customer data mining is big business. It doesn't matter of the company is online or a bricks and mortar store they want to know all they can about you. Who are you? How old are you? What zip code do you live? They track your purchases and store your credit card data.

Last year retail giant Target (TGT) disclosed a cyber breach that affected up to 110 million customers to potentially having their credit card data stolen. Months later, Target's president and CEO resigned over the fiasco. Target isn't the only one being targeted. The University of Maryland recently disclosed an online security breach. The number of cyber attacks on small business doubled last year.

Sadly it's only getting worse. The Justice Department called the online landscape for cyber threats and hacking extremely dangerous. They used the term "pre-9/11 moment" suggesting that any day now someone could launch a massive cyber attack. The government is worried about protecting our infrastructure and electrical grid. Corporate America wants to protect their data (and your data). That's why cyber security is big business and getting bigger.

PANW is making a splash in the security world. The stock IPO'd in 2012 and while it has been a rocky ride so far the company seems to have found its groove. Founded in 2005 and headquartered in Santa Clara, California, PANW describes their company as, "leading a new era in cybersecurity by protecting thousands of enterprise, government, and service provider networks from cyber threats. Unlike fragmented legacy products, our security platform safely enables business operations and delivers protection based on what matters most in today's dynamic computing environments: applications, users, and content."

More than 70 of the Fortune 100 companies use PANW's products and services. In 2013 PANW saw revenues grow +55% year over year, outpacing their rivals. They have added more than 1,000 customers per quarter for the last ten quarters in a row. PANW most recently reported earnings on May 28th and said it was their "highest rate of new customer acquisition in our history and now serve more than 17,000 customers."

Another important event last quarter was the settlement of a three-year patent lawsuit with rival Juniper Networks (JNPR). Resolving this issue has removed a significant black cloud over PANW.

Wall Street has noticed. The last few weeks have seen a number of price target upgrades. Deutsche Bank upped their PANW price target to $95.00. Goldman Sachs raised their price target to $97.00. Morgan Stanley is forecasting at PANW price target of $105.00.

Shares of PANW have rallied back toward their all-time highs set just five weeks ago. A bullish breakout appears imminent. Tonight we're suggesting a trigger to buy calls at $84.55. More conservative investors might want to consider waiting for a new high above $85.80.

Keep in mind that PANW is scheduled to report earnings on September 9th and we will likely exit prior to the announcement.

- Suggested Positions -

Long SEP $85 (PANW140920C85) entry $3.20*

08/04/14 triggered @ 80.50
*option entry price is an estimate since the option did not trade at the time our play was opened.
08/02/14 Strategy update: Move the entry trigger from $84.55 to $80.50 and move the stop loss from $79.65 to $76.75.
Adjust the option strike from Sep $90 call to Sep $85 call
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Pall Corp. - PLL - close: 77.59 change: -0.24

Stop Loss: 81.05
Target(s): To Be Determined
Current Option Gain/Loss: +30.7%
Average Daily Volume = 437 thousand
Entry on July 30 at $79.45
Listed on July 29, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments: 08/05/14:
PLL traded up to $78.40 before rolling over again. If the market manages another bounce then PLL is still at risk to bouncing up to its 10-dma (79.30) or the $80.00 level.

We're not suggesting new bearish positions at this time.

Earlier Comments: July 29, 2014:
PLL is in the industrial goods sector. It is considered part of the diversified machinery industry. They market to a lot of different customers around the world. PLL operates in the aerospace and defense industry, the animal health, biopharma, food and beverage, fuels and chemicals, graphic arts, laboratories, machinery and equipment, medical, microelectronics, power generation, and water treatment.

The company describes themselves as, "Pall Corporation is a filtration, separation and purification leader providing solutions to meet the critical fluid management needs of customers across the broad spectrum of life sciences and industry. Pall works with customers to advance health, safety and environmentally responsible technologies. The company's engineered products enable process and product innovation and minimize emissions and waste."

PLL's latest earnings report on May 29th was a disappointment. Wall Street was expecting a profit of $0.83 a share. PLL delivered 81 cents. Revenues did come in better than expected. Guidance was only in-line with prior estimates. The results failed to generate any investor excitement for the stock.

Quite the opposite seems to have happened. PLL produced what appears to be a triple-top pattern from late May through June. Then in July the stock has collapsed through several layers of support. Today we are seeing PLL breakdown under significant support at the $80.00 mark, support at its 300-dma, and support at its long-term trend line of higher lows (see weekly chart below).

Today's intraday low was $79.65. Tonight we're suggesting a trigger to buy puts at $79.45. We're not setting an exit target yet but I will point out that the point & figure chart is bearish and forecasting at $72.00 target.

Keep in mind that PLL is scheduled to report earnings again in very late August. There is no confirmed date yet. We will likely exit prior to the announcement.

- Suggested Positions -

Long Sep $80 PUT (PLL140920P80) entry $2.60*

07/30/14: triggered @ 79.45
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

PVH Corp. - PVH - close: 109.28 change: +1.41

Stop Loss: 112.55
Target(s): To Be Determined
Current Option Gain/Loss: -20.3%
Average Daily Volume = 821 thousand
Entry on August 04 at $108.00
Listed on August 02, 2014
Time Frame: 4 to 6 weeks, exit ahead of earnings in mid September
New Positions: see below

Comments: 08/05/14:
I cautioned readers yesterday that PVH might bounce toward short-term resistance near $110.00. The high today was $110.10.

I don't see any changes from my prior comments.

Earlier Comments: August 2, 2014:
PVH is one of the largest apparel companies in the world. They purchased the Calvin Klein brand in 2003. In 2010 they added Tommy Hilfiger to their portfolio. Last year they purchased the Warnaco Group. PVH is also know for its Van Heusen, IZOD, ARROW, Speedo, Warner's and Olga brands. PVH started in 1881 and has grow into clothing powerhouse with sales topping $8 billion a year across North America, Europe, Asia and Latin America.

The stock has delivered an amazing performance from its 2009 lows near $15.00 to January 2014 high of $137.00 a share. Unfortunately for investors the momentum has reversed. Technically shares have formed a massive head-and-shoulders bearish top over the last several months (see weekly chart below).

Consumer spending patterns have changed this year. Consumers seem to be saving up and purchasing big ticket items like cars and spending less on apparel. PVH has been working hard to overcome the tough environment. During the previous quarter PVH managed to show revenue growth but profits are getting squeezed. That's like due to the increasingly promotional retail environment. The big drop in early June was a reaction to PVH's earnings where they missed the bottom line estimate by two cents and management guided lower.

The stock's recent bounce just failed at resistance near $115 and its 20 & 30-dma. Now PVH is breaking support near $110. The Point & Figure chart looks pretty ugly and currently projects an $82 target.

I am suggesting bearish positions now at current levels. We are not setting an exit target tonight but we'll most likely exit prior to PVH's next earnings report in mid September.

Stop Loss: 35.55
Target(s): To Be Determined
Current Option Gain/Loss: -66.2%
Average Daily Volume = 4.8 million
Entry on August 04 at $33.71
Listed on August 02, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments: 08/05/14:
Our bearish bet on COH did not pay off. Yesterday Michael Kors (KORS) reported disappointing results. We were expecting another miss out of COH as well. Wall Street was expecting a profit of 53 cents a share on revenues of $1.09 billion. COH delivered 59 cents on revenues of $1.14 billion.

The better than expected numbers sparked some short covering and COH gapped open higher at $35.32. Our stop was quickly hit at $35.55.

- Suggested Positions -

Sep $33 put (COH140920C33) entry $1.45 exit $0.49 (-66.2%)

08/05/14 stopped out following better than expected earnings
08/04/14 set initial stop loss at $35.55
08/04/14 trade began at the opening bell
Option Format: symbol-year-month-day-call-strike

chart:

United Natural Foods, Inc. - UNFI - close: 59.54 change: -0.41

Stop Loss: 60.35
Target(s): To Be Determined
Current Option Gain/Loss: -14.9%
Average Daily Volume = 443 thousand
Entry on July 28 at $59.00
Listed on July 26, 2014
Time Frame: exit PRIOR to earnings in mid September
New Positions: see below

Comments: 08/05/14:
Yesterday we were concerned with UNFI's relative strength and lowered the stop to $60.35. Today shares traded above what should have been resistance at $60.00, hit our stop, and then reversed lower as the market sank this afternoon.